BP sees steep fall in US government fuel contracts

The London-based company was temporarily barred from new federal contracts and other work after the 2010 Gulf of Mexico oil spill. While BP has sued to get the suspension lifted, the US has said it wants to continue the ban, which also affects oil and gas leases coveted by the supplier.

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By JONATHAN D. SALANT and KATHLEEN MILLER

Bloomberg

BP, once the Pentagons top fuel supplier, is now the
biggest loser among US government vendors.

A combination of no big contracts awarded and promised
military work withdrawn left BP with a net loss of $654
million in federal contracts in the year that ended Sept. 30,
according to data compiled by Bloomberg. That
compared with $2.51 billion in awards in fiscal 2012.

I have never heard of a contractor falling in anything
remotely like the distance from plus $2 billion to minus $600
million, said Charles Tiefer, a University of Baltimore
law professor and former member of the US Commission on
Wartime Contracting. The government has come down on BP
because it needs to see that BP does not merely talk the talk
of behaving responsibly but actually walks the walk.

The London-based company was temporarily barred from new
federal contracts and other work after the 2010 Gulf of
Mexico oil spill. While BP has sued to get the suspension
lifted, the US has said it wants to continue the ban, which
also affects oil and gas leases coveted by the supplier.

The suspension cost BP the ability to win new federal work
that might be worth billions of dollars. The Defense
Department, by far the governments biggest buyer of
petroleum products, also withdrew obligations, or promised
funding, of more than $400 million last year after one of its
offices didnt buy a minimum amount of fuel required
under the contracts.

No Extensions

Government agencies that dont make such minimum
purchases usually extend contracts rather than cancel them,
said Rob Burton, a partner at the law firm Venable and deputy
administrator of the Office of Federal Procurement Policy under President George W.
Bush.

They feel its a high risk to terminate and find
alternative sources, Burton said in an interview.

Instead, the Defense Logistics Agency, part of the Pentagon,
chose to let the agreements expire.

Suspended contractors cannot have the duration of their
contracts extended without a compelling reason to do
so, Mimi Schirmacher, a spokeswoman for the agency,
said in an e-mail.

Three of the defense agencys contracts, originally
valued at a total of $2.15 billion, were awarded between May
and September 2012 before BPs temporary ban in November
2012, according to data compiled by Bloomberg.

The three contracts werent extended as a result
of the suspension, which we are challenging in court,
Geoff Morrell, a BP spokesman, said in an e-mailed statement.

BP Sues

The company in August sued the Environmental Protection Agency in
federal court in Houston to try to get the suspension lifted.
We believe that the EPAs disqualification and
suspension decisions should be invalidated because they are
arbitrary and capricious, Morrell said.

The government in January asked the court to continue the
ban, saying BP hasnt yet demonstrated it would act
responsibly.

The EPA imposed the suspension after determining that the
company hadnt fully corrected problems that led to the
fatal explosion aboard the Deepwater Horizon drilling rig.

Given this history, it was wholly reasonable for
the agency to conclude that BPs latest round of
plans and promises is insufficient to demonstrate that BP is
a responsible federal contractor, the Justice
Department said in the court filing.

With BP temporarily blacklisted, the government is turning to
other companies.

Largest Sellers

In fiscal 2011, BP was the largest seller of fuel to the
military, with $1.37 billion in prime, or direct, contracts.
A year later, it ranked just below No. 1 Royal Dutch Shell,
based in the Hague, Netherlands -- which had $2.86 billion.

Closely held Refinery Associates of Texas,
based in New Braunfels, Texas, was the No. 1 supplier last
year, with $1.34 billion. It was followed by Miami-based
World Fuel Services, with $1.19 billion, and National Fuel,
based in Kabul, Afghanistan, with $912.7 million.

The federal data measure contract obligations, or funding
that is set aside for later spending. The data is published
by the US government and compiled by Bloomberg.

BP, in the meantime, received just $31 million in contracts
from federal agencies, while $685 million in planned orders
disappeared, most of it from the withdrawn military work.

The companys reversal of fortune is unusual, said Brian
Friel, a Bloomberg Industries analyst.

Its fall in the rankings shows the extraordinary
circumstance of the Gulf oil spill that led to BPs fall
from grace with the US government, he said.

Natural Gas

Among federal agencies, the US Justice Department had the
most contract obligations with BP in fiscal 2013 -- $341,225
for natural gas at the Bureau of Prisons. Brian Fallon, a
Justice Department spokesman, didnt return e-mails
seeking comment.

Suspended companies are allowed to continue to sell to the
government under existing contracts or when no alternatives
exist.

The suspension may cost BP opportunities to expand its
foothold in the Gulf of Mexico. The Bureau of Ocean Energy
Management, part of the Interior Department, has scheduled an
auction March 19 for more than 40 million acres for oil and
gas exploration.

BP is the second-biggest oil producer in the Gulf with 63.6
million bbl in 2013, second only to Shell, according to
Interior Department figures. Chevron is No. 3.

Its been a core strength for them, Brian
Youngberg, an energy analyst with Edward Jones & Co. in
St. Louis, said in a telephone interview. Theyre
anxious to get back into the Gulf.

More Oil

BP produced more than 200,000 bpd of oil in the fourth
quarter from its 10 rigs in the Gulf, CEO Robert Dudley said
on Feb. 4 during the companys fourth-quarter earnings
conference call. It expects to eventually produce more than
300,000 bpd of oil in the area, he told investors.

In an investor call last year, Dudley called the Gulf
drilling central to the portfolio for decades to
come.

The suspension wont prevent BP from bidding March 19,
only from winning, Jessica Kershaw, an Interior spokeswoman,
said in an e-mail.

If the company is the high bidder and the suspension is
lifted during an evaluation period after the auction, BP will
win the leases. If the suspension remains in place, it
wont.

BP pleaded guilty in January 2013 to 11 counts of felony
seamans manslaughter, two pollution violations and one
count of lying to Congress in connection with the offshore
spill, the worst in US history. It agreed to pay $4.25
billion in related criminal and civil penalties and faces
additional fines, in addition to thousands of claims by
individuals and companies.

Analyst Youngberg said the US may want the ban in place until
all the lawsuits are settled.

EPA may be saying as long as theres litigation,
they wont lift the suspension, he said. Is
that an incentive for BP to settle? Possibly.

Have your say

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Fooey on BP. Plenty of American companies will be happy to fill the void.

Bhadresh03.12.2014

BP have demonstrated commitment for recovery and compensation due to oil spill. In USA , it is considered to give fair chance even to convicted, once they come out after prison terms. This behavior will cost inflation in gas prices, closure of plants and employment. B.P have kept the patience and dignity and fulfilled social and economical obligations. I thing it is time to start business with BP and stop vengance.

EagleEye03.11.2014

This is short sighted.

The military will pay more from the other refiners and, the other refiners will not have the capacity to adequately supply our military.

aamir03.11.2014

I applaud the US government for this decision. You shoud continue it for a very long time.

This company is a pariah rules and regulations do not mean anything to it, it has its own twisted ways of working, employs despicable employees who indicate that the heavier they are, the more competent they are.

In a meeting with different companies, if you feel that there is a need for some fresh clean air in the room, you can be sure that BP is somewhere in that room